Chinese firm wins A123 despite U.S. tech transfer fears

China's largest auto parts maker won U.S. government approval to buy A123 Systems Inc AONEQ.PK, a maker of electric car batteries, despite warnings by some lawmakers that the deal would transfer sensitive technology developed with U.S. government money.

The sale of the lithium-ion battery maker to a U.S. unit of Wanxiang Group was approved by a U.S. government committee on foreign investment, according to a statement from the Chinese company.

Last month, Wanxiang's U.S. unit agreed to pay $257 million for A123's automotive battery business and related assets in a bankruptcy auction, beating U.S. rival Johnson Controls Inc (JCI.N) of Milwaukee.

But the transaction still needed approval by the Committee on Foreign Investment in the United States, a government body led by the Treasury secretary. The CFIUS approved the deal on Monday night, according to Wanxiang.

"Wanxiang America looks forward to closing the transaction and to continuing to foster the technologies A123 has worked so hard to develop," said Pin Ni, the president of Wanxiang America Corp, in a statement.

A123 declined to comment.

Some members of Congress and the Strategic Materials Advisory Council - a group including retired military leaders that is focused on protecting the U.S. industrial supply chain - said the sale to Wanxiang could jeopardize U.S. energy security and they asked the U.S. committee to block it.

A123 had received a $249 million grant from the U.S. government as part of a stimulus program to promote clean energy, although about half of that money was never released.

The company filed for bankruptcy in October due to weaker-than-expected demand for hybrid vehicles and technical problems.

The company makes batteries for Fisker Automotive, BMW (BMWG.DE) hybrid 3- and 5-Series cars, and General Motors Co's (GM.N) all-electric Chevrolet Spark, which is scheduled for release later this year. China's SAIC Motor Corp (600104.SS) and India's Tata Motors (TAMO.NS) also are customers.

The sale has been approved by the U.S. Bankruptcy Court and A123 said on January 18 it expected the deal to close by Friday.

The money raised in the auction will be used to repay the battery maker's debts of about $376 million.

BLUNTING CRITICISM

Wanxiang tried to blunt criticism of the deal by excluding A123's defense contracts from its bid at the auction. Those were sold separately to Illinois-based Navitas Systems for $2.25 million.

"There is no question that CFIUS process is there to fully protect national security issues and we are glad that we could have addressed all the concerns CFIUS has," Wanxiang America's president said in an email to Reuters.

Among the lawmakers who remained opposed to the sale were two senators who questioned the government's funding of the battery company even before its bankruptcy.

"Technology produced by A123 and funded by U.S. taxpayers should not simply be shipped off to China so that the military applications for these materials can be reproduced abroad," said a statement from John Thune, a Republican senator from South Dakota.

Thune and Chuck Grassley, a Republican senator from Iowa, called on CFIUS for a full briefing on the A123 review.

A123 received its U.S. government funds, which it used to build manufacturing plants in Michigan, as part of a $90 billion program to promote clean energy.

Chinese companies have been pouring cash into overseas investments, and with that money has come concerns around the globe that companies with ties to Beijing may not play by free-market rules.

The CFIUS recently rejected a bid to build wind farms in Oregon by Ralls Corp, owned by two executives of China's Sany Group SANYG.UL. The committee has also blocked multiple deals by Huawei Technologies Co HWT.UL, a Chinese telecom equipment manufacturer.

Wanxiang may have soothed the concerns of CFIUS members with its history of investing in the United States.

The company generates about $1 billion in U.S. revenue by supplying parts to GM and Ford Motor Co (F.N). It has bought or invested in more than 20 U.S. companies, many of which were in bankruptcy, according to a congressional report.